What Are the Major Federal Taxes

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What Are the Major Federal Taxes?

• Personal income tax
• Corporate income tax
• Social security tax

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Exhibit 1 Major Federal Taxes
SOURCE Council of Economic Advisers, Economic
Report of the President, 1999.
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Three Income Tax Structures Exhibit 2
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What are the Major Federal Government Spending
Programs?

• National defense
• Income security
• Health
• Medicare
• Social security
• Net interest on the National Debt

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Exhibit 3 Major Federal Spending Programs
SOURCE Council of Economic Advisers, Economic
Report of the President, 1999.
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DEBT AND DEFICITS

• BUDGET DEFICITS occur when government
  expenditures exceed tax receipts
• A BUDGET SURPLUS occurs when tax receipts exceed
  government expenditures

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CYCLICAL DEFICITS

• The portion of the deficit that is a result of an
  economic downturn
• many economists (Keynes) believe that deficits
  are natural and necessary during recessions
  because tax revenues fall and benefit payments
  rise
• Our problem is that we have continued to run
  deficits in expansionary periods

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STRUCTURAL DEFICITS

• The structural deficit is the portion of a budget
  deficit which exists when the economy is
  operating at full employment
• Total Budget Deficit structural deficit
  cyclical deficit

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National Debt

• NATIONAL DEBT is the total sum of what the
  federal government owes its creditors (the sum of
  past deficits)

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Exhibit 5 Public Debt for 19871999 The 1999
amount is for November 1999.
SOURCE Bureau of the Public Debt.
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Deficits and Debt as of GDP Exhibit 5
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NATIONAL DEBT

• As the debt grows, interest on the debt grows in
  its share of the budget.
• The portion of the budget that can be cut in
  order to balance the budget is SHRINKING

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PORTION OF THE BUDGET THAT IS CONSIDERED
UNTOUCHABLE

• Interest on the Debt 14
• Social Security 22
• untouchable total 36
• National Defense 20
• Total 56

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WHO BEARS THE BURDEN OF THE DEBT?

• CURRENT GENERATION - if crowding out occurs then
  households are giving up consumption to pay for
  increases government spending
• FUTURE GENERATIONS - will have to pay higher
  taxes to pay off the bonds when they come due.
  They bear the cost while the bondholders receive
  the payoffs.

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COUNTERPOINT

• WE-OWE-IT-TO -OURSELVES - if American
  taxpayers make payments to American bondholders,
  money is simply shifted from one pocket to
  another.
• Only works if debt is held domestically
  (currently 14-18 is held by foreigners)